‘Fiscal cliff,’ large budget deficits await action in divided Capitol

Fresh off a grueling re-election victory, President Barack Obama will have to pivot quickly to resolve a fast-approaching budget crisis that could tilt the economy back into recession. He’ll have to do so by working across party lines with a divided Congress that has shown little appetite for compromise.

Reuters

U.S. President Barack Obama, who won a second term in office by defeating Republican presidential nominee Mitt Romney, smiles before addressing supporters during his election night victory rally in Chicago, November 7, 2012.

Leaders of both parties, as they always do, offered soothing words after Obama on Tuesday defeated Republican Mitt Romney to capture a second term. The president won by a narrow 50% to 48% margin, backed by a broad coalition of young voters, blacks, Latinos, union members and single women.

“Now that the election is over, it’s time to put politics aside and work together to find solutions,” said Harry Reid of Nevada, the Democratic leader of the Senate. And John Boehner of Ohio, Republican speaker of the House, said it’s time for the two parties to “find common ground” to improve the American economy.

Finding common ground won’t be easy. The election results revealed an America that is still politically divided and neither party can claim a clear mandate from the public for the policies they would most like to pursue, based on exit polls of voters. The bitter tone of the election is also likely to leave bruised feelings on both sides.

Yet lawmakers will have to act soon to prevent further damage to a fragile U.S. economy. Huge tax increases and spending cuts are slated to take effect on Jan. 1, a scenario known as the fiscal cliff, unless Congress and the White House undo current law. Analysts warn that a failure to reach a deal could sink the economy.

Time is running out. There’s less than two months left in the 2012 congressional session and the odds of lawmakers striking a so-called grand bargain are low. Both parties tried for months to craft a deal in 2011 but talks eventually fell apart.

Dick Gephardt, a former Democratic leader in the House, said Wednesday he’s skeptical Congress can work out a long-term deal before the end of the year. That would require Democrats and Republicans to accept spending cuts to cherished programs or tax increases they’ve long resisted.Read more on Gephardt’s comments.

“There is nothing good in any of this politically,” Gephardt said at a post-election forum Wednesday in Washington, D.C. “It’s all bad, it’s toxic, it’s poison.”

More likely, he and other former lawmakers said, is that Congress will kick the problem down the road by agreeing to a temporary fix.

In a brief press conference, Reid insisted a temporary band-aid is not the way to go. “I am not for kicking the can down the road,” he said. “We know what needs to be done.”

Stalemate over taxes

Even the shape of a short-term fix, however, is hard to picture. Obama has vowed to let Bush-era tax cuts for the wealthiest Americans expire as scheduled at the end of the year. He wants Republicans to agree to extend existing tax breaks for middle-class voters.

The president’s approach was rejected by Republicans in 2011 and Boehner suggested after the election was called for Obama Tuesday night that conservatives are no more likely to agree.

“With this vote, the American people have also made clear that there is no mandate for raising tax rates,” he said. Republicans maintained control the House by a solid margin of at least 30 seats.

Both parties can claim some support for their position. Exit polls, for instance, show that two-thirds of voters reject higher taxes as a means to reduce annual deficits that have topped $1 trillion for four straight years.

Yet when asked in a separate question if the rich should pay more, some 47% of voters agreed vs. just 35% who said taxes should not be raised on anyone.

Beyond the issue of taxes, both parties will have to come to grips with the rising cost of entitlement programs, mainly Medicaid and Medicare. If costs are not contained, they threaten to crowd out spending on other social programs as well as the military.

The threat of lower military spending, political analysts say, could spur some defense-minded Republicans to break with their party and make concessions on taxes.

One thing that’s not on the chopping block is Obama’s signature health-care reform law. Although exit polls show more Americans are against the law than in favor, the president’s reelection will ensure it survival.

Now the White House will have to deal with the potentially messy task of implementing the massive law as it kicks in over the next two years.

Latino vote critical

Obama also says he wants to pass major reform to immigration law and make it easier for people in the U.S. illegally to become citizens. The president’s position helped him expand his vote among the fast-rising U.S. population of Latinos in the 2012 election.

Republicans took a tough stance on immigration and it proved costly. The percentage of Latinos rose a notch to 10% in the 2012 election and Obama won more than 70% of their vote. Just eight years ago, Democrats were barely able to win over half of the Latino voting population.

By contrast, the white vote continued to decline, falling to 72% in 2012 from 77% just eight years ago. What’s more, even most white voters favor a more lenient immigration policy, exit polls showed.

The dwindling white population suggests Republicans will have to soften their stance on immigration and promoting rising party stars such Sen. Marco Rubio of Florida in an effort to win back a greater share of the Latino vote.

Obama also generated strong turnout among young people, using social media such as Twitter and Facebook to get them to the polls. The percentage of voters in the 18-29 age bracket rose for the second election in a row

He also attacked Republicans repeatedly on abortion rights and ran up a big margins among single women, offsetting Romney’s lead among married people.

Little mandate

Yet despite running a very effective campaign, the president clearly has a shallower well of public support then when he first won election in 2008 on a message of hope and change.

Americans were even split, 49% to 49%, on whether they have a positive or negative view of his administration. And 52% think the U.S. is seriously off track, compared to 46% who are think the country is headed in the right direction.

Nor are a majority of voters clamoring for major new government programs. Some 51% said the government is too intrusive vs. just 43% who think it should do more

The dissatisfaction was evident in voters’ views of the economy. They narrowly gave the edge to Romney on key issues such as who would handle the economy or budget deficits better.

Obama won largely by successfully painting Romney, a wealthy businessman, as a person who did not care about the middle class. A majority of Americans said Obama is more “in touch” with their concerns and that Romney’s policies would favor the rich.

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